The case of the disappearing surplus

The fiscal year (FY) 2003 budget war is underway with, as usual, the issues clouded by what Mark Twain called “figures, statistics and damn lies.”

The first budget surplus in 30 years was generated in FY 1998. In every year since, the budget battles – to the extent they could be called battles – have centered on its size and possible use, with the right wing determined to take advantage of the situation to enact another round of tax giveaways to the rich and super-rich.

Where Newt Gingrich and his “Gang of ’73” failed to enact such a giveaway in the FY 1998 budget, George W. Bush succeeded in 2001.

At that time, a compliant Congress, with 12 Senate Democrats jumping ship, adopted the FY 2002 budget giving hundreds of billions of dollars in tax breaks to their friends in the top 1 percent of the income pyramid and rebate checks, worth no more than &#036;300, to working people who paid federal income taxes.

A key element in shaping the debate was a January 2001 report by the Congressional Budget Office (CBO) promising an endless run of budget surpluses, totaling &#036;5.6 trillion for the 2002-2011 period.

“The government has been collecting too much money,” George, The Appointed, said. “There’s enough money for tax cuts, education and anything else we need.”

This column was one of many that warned that the surplus was an illusion; that after raiding the treasury for his rich friends, the president would discover the surplus was gone, and would start attacking programs that help people.

We were right.

According to a January 2002 report, the CBO said budget surpluses between 2002 and 2011 will be &#036;4 trillion smaller – and the debt &#036;4.2 trillion higher – than those projected just a year ago.

The Center for Budget Policy and Priorities (CBPP) says three factors contributed to the new reality:

1) A revenue decline of nearly &#036;2.5 trillion; 2) Bush’s &#036;1.7 trillion tax giveaway that gobbled up 41 percent of the surplus; and 3) increased military spending, including “homeland defense,” which chewed up another 18 percent.

Simply put, the great budget surplus has evaporated, the victim of fuzzy math, Bush’s tax cut and the hysteria created by the events of Sept. 11.

Throughout the 1946-1980 period the budget generally ran a modest deficit as government borrowing financed things that stimulated economic growth: highways, airports, jobs, a healthier and better-educated people.

Throughout these years the Democrats stood their ground in the face of the GOP charges of “tax and spend,” as most of their spending of public money went for things voters valued.

As long as the economy grew faster than the public debt, deficits were no problem. That changed with the prolonged, excessive – and deliberate – deficits of the Reagan-Bush years that did and continue to do damage. But not until the over-reaction to the Reagan deficits was a balanced budget equated with fiscal virtue.

But that, too, has begun to change as the economy continues to worsen and the unemployment lines lengthen.

Polls show that economic issues – unemployment, jobs, health care among them – top the list of concerns of a growing number of voters and are the ingredients of a winning politics.

One would think this would spell good news for the Democrats as they search for issues upon which to ground their 2002 election strategy. But hold the champagne.

In their over-solicitude for fiscal responsibility, Democratic congressional leaders have all but abandoned the franchise they won during the struggles of the 1960s, to say nothing of the New Deal, leaving Sen. Edward Kennedy (D-Mass.) and members of the Congressional Progressive Caucus as the only voices calling for reversal of the most egregious provisions of the 2001 tax bill.

Although Kennedy’s call for a two-year postponement of scheduled tax cuts for the richest 6.5 million taxpayers is but a small step toward bringing even a modicum of balance to that legislation, it has drawn the wrath of the GOP establishment.

Critics have attempted to portray it as an increase that would gut the tax cuts of 2001 when, in fact, it would affect only the top 4.4 percent of all income tax-filers, and reduce the 10-year cost of the 2001 tax cut by about 20 percent.

Although significant, these steps are smaller than the proportion of the 1991 tax cuts that were restored as the economy worsened in 1992-93.

Tax cuts already in effect were scaled back, tax cuts not yet in effect were canceled and some taxes were increased. According to CBPP these revisions, enacted while Ronald Reagan occupied the White House and Bob Dole chaired the Senate Finance Committee, restored one-third of the 1991 cuts.

These are some of the steps that can be taken on the path toward establishing a federal taxation policy based on the slogan, “Make the rich pay!”